The GAO acknowledges that the SEC currently does not have the capacity to effectively examine registered investment advisers. But does that mean Congress and the SEC should allow the private fund industry to regulate itself?

Among other things, the GAO raised concerns that the self-regulation of private fund advisers has the potential to:

increase the overall cost of regulation by adding another layer of oversight;

create conflicts of interest, in part because of the possibility for self-regulation to favor the interests of the industry over the interests of investors and the public; and

limit transparency and accountability, as the SRO would be accountable primarily to its members rather than to Congress or the public.

Rather than outsourcing even more of the SEC’s authority to an industry group, we urge Congress to give the SEC and other government regulatory agencies the funding they need to accomplish their mission, including their expanded responsibilities under the Dodd-Frank financial reform legislation.